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Date: 6/28/2016 7:14 PM UTC

11 IMPORTANT KEY POINTS FROM EACH TITLE OF

SARBANES-OXLEY ACT

The Sarbanes-Oxley Act of 2002 was passed by the United States Congress as a
way to protect investors from the risks of fraudulent accounting conducted by
corporations. This act put strict reforms into place to improve financial
disclosures and prevent fraudulent accounting practices. There are also

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 disclosures and prevent fraudulent accounting practices. There are also
regulations within the act that apply to privately held companies, such as the
willful destruction of evidence to interfere with Federal Investigations.

The need for this Act arose after one too many large-scale corporate accounting
scandals such as Arthur Andersen and Enron. With these big names in the news
for fraud, public confidence became rather shaky.

The bill was signed into law on July 30, 2002 in hopes of reestablishing some of
the public’s trust in corporations. It stands as the largest-reaching US securities
legislation passed in recent years.

The Senate refers to the Sarbanes-Oxley Act as the “Public Company

Accounting Reform and Investor Protection Act,” and the House refers to it as
Sarbanes-Oxley, Sarbox or SOX.

Regardless what you call it, the Act outlines how corporations must comply with
the law. The Act is also intended to add stricter criminal penalties for certain acts
of misconduct.

11 Titles Of Sarbanes-Oxley

There are many details outlined by this monumental Act, broken down into 11
different titles. Here are the fundamental points from each title that help make
the overall premise more understandable for businesses and investors.

Title I: Public Company Accounting Oversight Board

The Public Company Accounting Oversight Board was instituted in order to
manage the audit of all public corporations. The board creates and sets forth the
standards and rules for auditing reports as well as inspects, investigates and
enforces compliance with these rules. The board is also tasked with central
oversight of the independent accounting firms assigned to provide auditing
services.

Title II: Auditor Independence

In aims of removing conflicts of interest, there are nine sections within Title II
that outline standards for external auditor independence. For instance, audit firm
employees must wait one-year after leaving an accounting firm to become an
executive for a former client. There are restrictions concerning new auditor
approval and auditor reporting requirements. A company that provides auditing
services to a client is not legally allowed to provide any other services to that
same client.

Title III: Corporate Responsibility

In order to further uphold accountability, regulations impose all senior
executives with the individual responsibility of the accuracy of financial reports.

Title IV: Enhanced Financial Disclosures

The Act greatly increases the number of disclosures a company must make
public such as off-balance-sheet transactions, stock transactions involving
corporate officers, and pro-forma figures. All of these disclosures and more must
be reported in a timely fashion.

Title V: Analyst Conflicts Of Interest

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 Title V: Analyst Conflicts Of Interest
The point of Title V is to improve investor confidence regarding the reporting of
securities analysts. This section includes codes of conduct as well as the
disclosure of any and all conflicts of interests known to the company. Everything
must be reported, such as if the analyst holds any stock in the company or has
received any corporate compensation, or if the company is a client.

Title VI: Commission Resources And Authority

Title VI outlines a number of practices including the SEC’s authority to remove
someone from the position of a broker, advisor or dealer based upon certain
conditions.

Title VII: Studies & Reports

Title VII outlines certain studies and reports the SEC and the Comptroller
General must perform. These tests and reports include analyzing public
accounting firms, credit rating agencies and investment banks to ensure they do
not play a role in facilitating poor/illegal practices in securities markets.

Title VIII: Corporate and Criminal Fraud Accountability

Any alterations, concealment or destruction of records in hopes of influencing
the outcome of a Federal investigation is punishable by fines and up to 20-years
in prison. Anyone that plays a role in defrauding shareholders of publicly traded
companies is subject to imprisonment and fines. Title VII also outlines special
protections for whistle-blowers.

Title IX: White Collar Crime Penalty Enhancement

There are 6 sections in Title IX, all in aims of increasing criminal penalties for
white-collar crimes. This Title adds failure to certify corporate financial reports
as a criminal offense, and encourages stronger sentencing guidelines in hopes of
making punishments outweigh the potential for quick financial gains.

Title X: Corporate Tax Returns

Section 1001 from Title X mandates the need for the Chief Executive Officer to
sign company tax returns.

Title XI: Corporate Fraud Accountability

Title XI includes seven sections dedicated to defining corporate fraud. It defines
any tampering of records as a criminal offense punishable under specific
penalties. It also outlines sentencing guidelines and increases overall penalties.
This particular Title gives the SEC the ability to freeze transactions considered
“large” or “unusual.”

Posted by Brian Good

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